We expect average inflation to be around 4.7% in FY24: Aurodeep Nandi

"There are upside risks on inflation, particularly from the food side, and we really do not know how the El Nino, the climactic risks are going to play out," says Aurodeep Nandi, Nomura.

Talk to us about the Goldilocks story. What are you pencilling in? How is it likely to pan out in FY24 going forward with respect to the GDP, with respect to the rate cuts?
So essentially, look the term Goldilocks and I do not know why people have settled on Goldilocks and no other Disney characters. But Goldilocks essentially means when your growth is good and your inflation is relatively low. And that is sort of the perfect situation which any economy could hold for. And the data that we have got has sort of painted that picture so we have got inflation coming in at much lower at around 4.3%. And industrial production growth for the month of March surprising market estimates at 4.2%.

Now, in terms of where we see these variables going forward, inflation, we believe, is going to be lower, so we expect the average inflation in FY24 to be around 4.7%.


There are upside risks on inflation, particularly from the food side, and we really do not know how the El Nino, the climactic risks are going to play out. But nevertheless, the factors that we see on the ground, which is very proactive supply side measures by the government, manufacturing costs coming off, the second round effects in terms of expectations, wage growth remaining relatively capped.

So on the inflation front, I think we are going to be in a phase of lower inflation. It is on the growth side that we have a bit of a divergent view. I mean, the early data for Q2 of this calendar year seems to suggest that the momentum is there but we think that the cycle is peaking off. And what we are concerned with is that in the second half of the year, the impact of this policy tightening that is happening so much globally will start to get more and more evident and global growth will start slowing, which will then have an impact on exports, particularly also on the software export side which has been driving a lot of the overall external sector and on the investment side.

Plus, within the consumption bracket, the GDP number that came out for the first quarter of the calendar year, Q4 of FY23, India's GDP growth was 6.21% but the consumption growth was less than 3%.

So consumption is a matter of worry that has to be looked at. So overall, for India's GDP growth, we have a projection of 5.5% for FY24. So we acknowledge that we are below market consensus here and below the RBI's projection of 6.5%. To answer finally your last point, which is what do we think the RBI will do? Well, I mean, again we are out of consensus here. We expect rate cuts starting from October in the year and 75 bps in the second half of the fiscal year.

From the 10th largest, we have become the fifth largest economy in the world. Surely there is growth. Yes, FY24 we may see those a bit of those downside risks that you mentioned. But growth going forward is that in place? Like FY25, would we be seeing better growth is what you are seeing now?
Yes, I think there is a lot of good fundamentals that are there in place. We are having much cleaner balance sheets for corporates, also for banks. There is a lot of capex that is coming in from the government. There is a lot of reforms that have happened over the past few years whose effects are yet to play out. So I think there are a lot of positive fundamentals that are at play. But for these fundamentals to kind of kick in at a time when global growth is uncertain is a little difficult. So on FY25, I think we have a relatively rosier projection. We have around 6.5% or so. So it is more of a V-shape that we have in mind currently. But this year, I think there are headwinds that one needs to be careful of.

Since we are getting at the cusp of the FOMC meeting, any sense as to what we should expect with respect to the US CPI, the rate action from the US Fed?
On the US inflation side, it might come out a little strong. So I think our US team has core CPI inflation at around 0.5% month on month. But we think that a lot of this higher print might be driven by temporary factors. So used vehicles and even within the sort of core services inflation that is services X, rent related components. We expect that a lot of it is going to be temporary factors and while there is going to obviously be a natural temptation for the market, if the US inflation is higher, there will be expectations of more rate hikes.

But we think our house view currently is that the Fed will look through these. So according to us, the US cycle has peaked. So we are not pencilling in another rate hike in the upcoming policy meeting this week.

We think it is done and now there will be rate cuts from March of 2024. But obviously a lot, there is a lot happening in the US with respect to what is going to happen for the banking sector, what is going to happen on inflation.

So there is a lot of uncertainty there. But our baseline view is that higher your core inflation this week might be a bit higher. But a lot of it is likely to be reflecting temporary factors. And as far as the Fed is concerned, our house views that of a pause.